Estimating risk preferences from deductible choice
By: Alma Cohen & Liran Einav
Contributors: Einav, Liran; John M. Olin Center for Law, Economics, and Business
Series: Discussion paper -- no. 582; Discussion paper (John M. Olin Center for Law, Economics, and Business : Online) -- no. 582.
Publisher: Harvard Law School
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "We estimate the distribution of risk preferences using a large data set of deductible choices in auto insurance contracts.  To do so, we develop a structural econometric model of adverse selection that allows for unobserved heterogeneity in both risk (claim rate) and risk aversion.  Weuse data on realized claims to estimate the distribution of claim rates and data on deductible and premium choices to estimate the distribution of risk aversion and how it correlates with risk.  We find large heterogeneity in risk attitudes: while the majority of individuals are almost risk neutral with respect to lotteries of 100 dollar magnitude, an important fraction of the individuals exhibitsignificant risk aversion even with respect to such relatively small bets.  The estimates imply that women are more risk averse than men, that risk aversion exhibits a U-shape with respect to age, and that most proxies for income and wealth are positively associated with absolute risk aversion.  Finally, unobserved heterogeneity in risk aversion is more important than that of risk, and risk andrisk aversion are positively correlated.  (US, Canada)"--John M. Olin Center for Law, Economics, and Business web site.
Notes: Title from PDF file as viewed on 6/28/2007.

Includes bibliographical references.

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